Urban Outfitters, Inc. (URBN)

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Urban Outfitters (URBN)

Q1 2012 Earnings Call

May 16, 2011 5:00 pm ET


Eric Artz - Chief Financial Officer

Glen Senk - Chief Executive Officer, Interim Global President of the Urban Outfitters Brand and Director

Freeman Zausner - Chief Administrative Officer


Sharon Zackfia - William Blair & Company L.L.C.

Dana Telsey - Telsey Advisory Group

Stacy Pak - Barclays Capital

Jeff Black - Citigroup Inc

Richard Jaffe - Stifel, Nicolaus & Co., Inc.

Christine Chen - Needham & Company, LLC

Lizabeth Dunn - FBR Capital Markets & Co.

Paul Lejuez - Nomura Securities Co. Ltd.

Betty Chen - Wedbush Securities Inc.

Michelle Tan - Goldman Sachs Group Inc.

Adrienne Tennant - Janney Montgomery Scott LLC

Brian Tunick - JP Morgan Chase & Co

Howard Tubin - RBC Capital Markets, LLC

Marni Shapiro - The Retail Tracker

Roxanne Meyer - UBS Investment Bank

Erika Maschmeyer - Robert W. Baird & Co. Incorporated

Samantha Panella - Raymond James & Associates, Inc.

Neely Tamminga - Piper Jaffray Companies

Kimberly Greenberger - Morgan Stanley

Lorraine Hutchinson - BofA Merrill Lynch

Janet Kloppenburg - JJK Research



Good day, ladies and gentlemen, and welcome to the Urban Outfitters, Inc. First Quarter Fiscal 2012 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded.

The following discussions may include forward-looking statements. Please note that actual results may differ materially from those statements. Additional information concerning factors that could cause actual results to differ materially from projected results is contained in the company's filings with the Securities and Exchange Commission.

I would now like to introduce your host for today's conference, Mr. Glen Senk, CEO. Sir, you may begin.

Glen Senk

Good afternoon, and welcome to the URBN quarterly conference call. With me today is Eric Artz, Chief Financial Officer; Oona McCullough, Director of Investor Relations; and a majority of our executive management team.

Earlier this afternoon, the company issued a press release outlining financial and operating results for the 3 months period ending April 30, 2011. Eric will begin today's call by providing details on our performance. I will continue the prepared commentary with closing remarks, then the group and I will be pleased to answer any questions you may have.

As usual, the text of today's conference call along with detailed management commentary, will be posted to our corporate website at www.urbanoufittersinc.com.

I'll now turn the call over to Eric.

Eric Artz

Thank you, Glen. The following summarizes our first quarter fiscal 2012 performance versus the comparable quarter last year.

Net sales increased 9% to a first quarter record of $524 million. Excluding the Leifsdottir one-time transition costs of $3 million during the current quarter, income from operations decreased 25% to $62 million or an operating margin of 11.8%. Net income as reported was $39 million or $0.23 per diluted share.

Comparable Retail segment sales, which include our direct-to-consumer channel, decreased 1%, with increases of 30% and 1% at Free People and Urban Outfitters, respectively, while Anthropologie decreased 6% in the quarter.

Total company comparable store net sales decreased 5%. Direct-to-consumer comparable net sales rose 15% with direct penetration increasing to 20%. Wholesale net sales increased 22% to $31 million. Gross profit decreased 4% to $193 million, while gross profit margins decreased 493 basis points to 36.9%.

Selling, general and administrative expense, expressed as a percentage of net sales, increased 96 basis points to 25.7%. Comparable Retail segment inventories at cost, which include our direct-to-consumer channel, were 6% higher at quarter's end, while comparable store inventories increased 1%. Finally, during the quarter, the company repurchased and retired 4.8 million common shares for $149 million, leaving 5.7 million shares remaining on the current authorization to purchase up to 10 million shares.

Turning to our key business metrics, I'll begin by providing detail on sales for the quarter. New and noncomparable store sales contributed $48 million to the consolidated net sales increase. The company opened 10 new stores in the quarter: 3 Anthropologie stores, 5 Free People stores and 2 Urban Outfitters stores. Within the quarter, total company comparable store sales were strongest in April, followed by February then March.

Within North America, sales in Anthropologie and Urban Outfitters were strongest in the south and weakest in the northeast, while sales at Free People were strongest in the west and weakest in the northeast. In Europe, sales at Urban Outfitters were strongest in Continental Europe and weakest in Ireland.

By store type, sales in Anthropologie were strongest in lifestyle centers and weakest in malls and street locations, while Urban Outfitters were strongest in malls and lifestyle centers and weakest in street locations. Sales at Free People were strong across all venues.

The comparable store net sales decline was driven by decreases in average unit selling prices, average number of units per transaction and total transaction counts of 2%, 1% and 3%, respectively. Direct-to-consumer revenue increased 19% to $102 million. The penetration of direct-to-consumer net sales to total company net sales increased 150 basis points to 20%, with results largely driven by a 24% increase in website traffic to over 31 million visits.

For Retail segment sales, intimates and home were strongest at Anthropologie, men's and home were strongest at Urban Outfitters, while all categories were strong at Free People. Wholesale segment sales for the quarter increased 22% to $31 million, driven by a 15% increase at Free People and increased off-price sales at Leifsdottir. I'd now like to turn your attention to gross margin operating expense and income.

Gross profit in the quarter decreased 4% to $193 million, and the gross margin rate decreased 493 basis points to 36.9%. This decline was primarily due to increased markdowns to clear slow-moving women's apparel inventory at Anthropologie and Urban Outfitters, as well as a $2 million nonrecurring loss associated with the selloff of Leifsdottir wholesale inventories.

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